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When Money Dies: The Dynamics of Speculative Hyperinflations

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  • Guillaume Rocheteau

Abstract

How quickly does a fiat money become valueless? I study the speculative hyperinflation equilibria of continuous-time economies with decentralized markets where money is essential. I establish necessary and sufficient conditions under which money dies in finite time. A necessary condition is that the liquidity return of money grows unbounded as the value of money approaches zero. Under CRRA preferences, the longevity of money shrinks with the money growth rate and the frequency of liquidity needs, but it increases with seller's market power. Money duration also depends on the strictness of legal restrictions and the rates of return of competing currencies.

Suggested Citation

  • Guillaume Rocheteau, 2025. "When Money Dies: The Dynamics of Speculative Hyperinflations," American Economic Review, American Economic Association, vol. 115(4), pages 1301-1337, April.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:4:p:1301-37
    DOI: 10.1257/aer.20231008
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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